obstacle in the way of further creation of fiduciary media. This is equally true of Peel's Act, which completely forbids the new issue of fiduciary media in the shape of notes, and of such bank-of-issue legislation in other states as does leave a certain scope for the augmentation of notes not backed by money. Between the English act of 1844 and, say, the German act of 1875, there seems to be a fundamental difference: while the one rigidly fixes, for all time, the quota of the note circulation not backed by metal, the other, inasmuch as it only requires that a certain proportion of the note circulation shall be backed by metal and puts a tax upon the rest, does make provision within certain limits for its future extension. But everything depends upon the scope that is thus provided for extending the issue of fiduciary media. If it had been wide enough to give free play to the development of the unbacked note circulation, then the German law —and the same is true, not only of other laws based on the same principle (for example, the Austrian), but also of those that attempt to limit the circulation of notes in other ways, as for example, the French—would have had fundamentally different results from the English. Since in fact it proved to be too narrow for this, the difference between the two laws is merely one of degree, not one of kind. All these laws have limited the issue of fiduciary media in the form of notes, but have set no limits to their issue in the form of deposits. Making the issue of notes more difficult was bound to promote an increased employment of deposits; in place of the note, the deposit account came into prominence. For the development of the credit system, this change was not altogether a matter of indifference. The note is technically superior to the deposit in medium and small transactions; in many cases for which it might have been used as a money substitute, checks or clearing transfers could not be used, and in such cases restriction of the issue of fiduciary media in the form of notes was bound to have the effect of restriction of the issue of fiduciary media in general. Under the law of the United States of America, the issue of fiduciary media in the shape of deposits is also restricted; but since this only applies to some of the banks, namely, the national banks, it is not enough to make a big difference between the deposit business of the United States and that of the other countries in which no similar regulations have been established.
The real obstacle in the way of an unlimited extension of the issue of fiduciary media is not constituted by legislative restriction of the note issue, which, after all, only affects a certain kind of fiduciary medium, but the lack of a centralized world bank or of uniform procedure on the part of all credit-issuing banks. So long as the banks do not come to an agreement among themselves concerning the extension of credit, the circulation of fiduciary media can indeed be increased slowly, but it cannot be increased in a sweeping fashion. Each individual bank can only make a small step forward and must then wait until the others have followed its example. Every bank is obliged to regulate its interest policy in accordance with that of the others.
3 The Nature of Discount Policy
The most obscure and incorrect concepts are current concerning the nature of the discount policy of the central banks-of-issue. Often the principal task of the banks is said to be the protection of their cash reserves, as if it would pay them to make sacrifices for such an aim as that. No less widespread, however, is the view that the banks' obligation to follow a discount policy that takes account of the circumstances of other banks is imposed upon them merely by a perverse legislation and that the ideal of cheap money—in a double sense, namely, a low purchasing power of money and a low rate of interest—could be realized by the abandonment of certain out-of-date legal provisions.
It is unnecessary to devote very much time to the refutation of such views as these. After all that has